GCC set for a mega IPO year led by Saudi Arabia and UAE

Kuwait Financial Centre ‘Markaz’ recently released its Monthly Market Research report, which provides a commentary on economic and market events that transpired in the GCC region for the month of February 2018.

For the GCC markets, the positive start to the year was short-lived as oil prices went down by 4.7 per cent to close below $66/bbl. The sentiments were reflected in the regional stock markets as well, with the S&P GCC Composite Index losing 2.5 per cent during February 2018. Bahrain, followed by Kuwait was the region’s top performers gaining 1.4 per cent and 0.5 per cent respectively. Similarly, the global markets retreated after a strong showing in the previous month. The MSCI World index and the US (S&P 500) lost 4.3 per cent and 3.9 per cent respectively in February, according to the report.

The Markaz report added that while the stock markets are witnessing heightened volatility, there is good news in the form of renewed interest for IPO’s in the GCC region. 2017 witnessed a record 17 issues raising $2.95 billion in capital. In 2018, Saudi Arabia and the UAE are set to lead the way for IPOs in 2018 as nearly 30 GCC companies are expected to go public.

During February 2018, GCC witnessed several interesting developments. Saudi Arabia’s cabinet has approved a new bankruptcy law, in an attempt to attract more foreign investments into the country and encourage SME growth. Though the finer details are still unknown, the revised framework is expected to strengthen the legal infrastructure for companies to confront financial difficulties efficiently.

S&P affirmed its “AA/A-1+” long-term and short-term foreign and local currency sovereign credit ratings for Kuwait with a stable outlook for the gulf state. The stable outlook reflects Kuwait’s strong public and external balance sheets backed by sizeable financial assets. S&P also projected Kuwait’s economic growth to hover around three per cent annually between 2019 and 2021.

Nasdaq Dubai launched their first index-based futures contracts, linked to DFM’s General Index and ADX’s main share index, the ADI. The launch of the futures is expected to help increase liquidity, attract international investments and provide a framework for hedging.

Creditors rejected the latest proposal from Dana Gas to restructure the $700 million Sukuk contracts that the latter refused to redeem.The company offered to redeem 10 per cent of the Sukuk in cash and roll over the rest at an annual profit of four per cent. The proposal was rejected as creditors wanted more favourable terms.

Saudi Arabia is working with HSBC, JPMorgan and Mitsubishi UFJ Financial Group on refinancing its existing $10 billion syndicated loan. The loan refinancing will include a repricing of the debt facility and a maturity extension, to 2023 from 2021.

On the oil front, OPEC is closing in on its goal of reducing oil inventories held by industrialised nations to their five-year average, the original target of a supply-cutting pact with Russia and others. The OPEC is reducing output by 1.2 million barrels per day based on the pact with Russia and other non-OPEC producers.

China is all set to foray into the crude futures market as it plans to introduce new crude-based futures contract, set to trade in the Shanghai International Energy Exchange. The yuan denominated contract is expected to be an alternative to WTI and Brent benchmarks and also aims to increase the usage of China’s currency for global trade.